Why Investors Shouldn't Be Surprised By Primeton Information Technologies, Inc.'s (SHSE:688118) 26% Share Price Plunge

Primeton Information Technologies, Inc. (SHSE:688118) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Following the heavy fall in price, Primeton Information Technologies' price-to-sales (or "P/S") ratio of 4.6x might make it look like a buy right now compared to the Software industry in China, where around half of the companies have P/S ratios above 6.5x and even P/S above 12x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Primeton Information Technologies

How Has Primeton Information Technologies Performed Recently?

While the industry has experienced revenue growth lately, Primeton Information Technologies' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Primeton Information Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Primeton Information Technologies' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 3.7% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the one analyst following the company. That's shaping up to be materially lower than the 30% growth forecast for the broader industry.

With this in consideration, its clear as to why Primeton Information Technologies' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Primeton Information Technologies' P/S?

Primeton Information Technologies' recently weak share price has pulled its P/S back below other Software companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Primeton Information Technologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Primeton Information Technologies that you should be aware of.

If these risks are making you reconsider your opinion on Primeton Information Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.